Exceptions 2 and 3 seem to represent the views of the Commission which framed the Bill as to the appropriate course to meet the contention that petroleum legislation should not be retroactive so as to injure acquired rights, and thus obviate the objection to depriving owners of private property acquired prior to May 1, 1917, of the rights accorded them by the laws of November 22, 1884, June 4, 1892, and November 25, 1909, the last of which in reaffirmation of the provisions of the law of November 22, 1884, provides that: "The following substances are the exclusive property of the owner of the soil: "(1) Ore bodies or deposits of mineral fuels of whatever form or variety; "(2) Ore bodies or deposits of bituminous substances." (Article 2). Despite the clear and unequivocal provision of these laws that the owner of the surface owns the petroleum deposits, the framers of this Bill have proceeded upon the theory that he does not own such deposits and that only in the cases where petroleum development was carried on in the lands prior to May 1, 1917, or where leases for petroleum development were made prior to that date has he any rights in such deposits which the Mexican Government is bound to respect in any degree, other than the rights of preferential denouncement for a period of two years, and of receiving five per cent of the total production when the deposits are developed by another. However, by making the exceptions mentioned the framers of the Bill recognized that the rights which the owners of the surface had in the subsoil were property rights in that they could be conveyed and transferred to others. Therefore they involve themselves in the apparent contradiction that property rights capable of transfer are not vested rights which the Mexican Government should protect. They take this view despite the previous legislation of Mexico to the effect that petroleum deposits are owned in freehold by the owner of the soil, which, as before stated, is the clear meaning of the provisions of the said law of 1909, as is especially apparent when the said provisions of Article 2 thereof are considered in connection with Article 1, which provides that certain other substances belong to the nation. Article 6 of the Bill provides that the owner of lands which are not included in the said subdivisions of Article 5 shall have a preference for two years after the passage of the Act, to denounce petroleum claims in his lands. It would seem that lessees of such lands would have no preferential rights under the provisions of the Bill. Article 7 empowers the Executive, with the consent of the Senate, to establish portions of territory known as reserve zones, in which no concession shall be issued for exploiting the subsoil. The provisions of this Article, if enacted into law, would seem to expose all owners to the danger of the loss of the usufruct of the subsoil and therefore constitute a grave menace to such owners. Article 13 provides that owners and lessees must obey the dictates of the Federal Government with respect to the amount of production from their properties. This provision appears to subject such owners and lessees to the danger of the arbitrary deprivation for an indefinite period of the right to develop the subsoil deposits. Article 14 provides that concessions for the development of petroleum may be granted to Mexicans by birth or naturalization, to Mexican companies, and to foreign individuals under the terms fixed by the Constitution and other laws relating thereto. Reading this Article in the light of the applicable provisions of the Mexican Constitution, it becomes apparent that foreign corporations are barred from concessions and that foreign individuals may only obtain them by conforming to the obnoxious provisions of the Constitution relative to the renunciation of their national rights by foreigners acquiring lands in Mexico. Article 20 forbids denouncements in the so-called Federal Zones and provides that such areas shall be developed by Federal concessions. With respect to the practical working of the provisions of Article 27 of the Mexican Constitution regarding the so-called Federal Zones, the Government of the United States is informed that thereunder attempts have been made to assert ownership in the nation of a large amount of property theretofore regarded as of private ownership and that with regard to such property many streams of entire insignificance and with which petroleum properties may be largely intersected have been held to be of public ownership, with the result that in some instances petroleum concessions have been granted therein to others than the owners or lessees of the land, thus decidedly hampering the latter in their operations, and diminishing the value of their subsurface deposits. The views of the Government of the United States on this feature of Article 27 of the Mexican Constitution have heretofore been made known to the Mexican authorities. through the medium of your Embassy. Article 21 forbids the construction of pipe lines for private use and states that companies operating said lines shall convey Government oil at cost and private oil at rates fixed by the Government. The provisions of the last mentioned Article would seem to represent an attempt to convert existing pipe lines into public carriers without regard to the obligation of contracts. You will convey the foregoing informally to the appropriate authorities as the views of the Government of the United States. which have been communicated to you and you will add that while your Government does not entertain the idea that in view of the pronouncements of the Administration functioning in Mexico that the provisions of Article 27 of the Mexican Constitution are not retroactive, the present Bill, directly opposed as it is to that theory, will be enacted into law, yet it desires to take this occasion to reiterate its position that the rights of American citizens acquired prior to May 1, 1917, in accordance with the laws of Mexico, must not be taken from them by attempted confiscatory legislation, and that the points in the pending Bill which your Government regards as open to this objection and other objections are as outlined above. I am [etc.] For the Secretary of State: DIRECT ARRANGEMENT BETWEEN THE OIL COMPANIES AND THE MEXICAN AUTHORITIES REGARDING TAXES ON THE PRODUCTION AND EXPORTATION OF OIL 60 600.127/174 The Association of Producers of Petroleum in Mexico to the Secretary of State WASHINGTON, June 2, 1921. SIR: For the information of your Department, there is enclosed copy of an export tax decree 1 as to which the Mexican Government has invited suggestions from the oil companies prior to its publication. Apart from the increases involved, in the case of crude petroleum of 0.93 from 10% to 12%, the decree has the fundamental defect that, while establishing an export tax, it nevertheless provides that, in order to determine the values of the several products on which the tax is to be levied, " the average of the values obtained for similar products in the United States of the North during the preceding month” (Art. V), will be taken, without making any provision for deducting transportation charges. In other words, the measure seeks to create an export tax based on values obtaining, not at the port of shipment, but in the United States. The Association of Producers of Petroleum in Mexico will meet tomorrow to consider the proposed measure, and will be pleased to advise the Department of the action taken. We have [etc.] ASSOCIATION OF PRODUCERS OF PETROLEUM IN MEXICO By H. N. BRANCH 600.127/175: Telegram The Chargé in Mexico (Summerlin) to the Secretary of State MEXICO, June 8, 1921-11 a.m. 128. Today's press publishes executive decree issued yesterday; greatly increased export duties on all grades of crude petroleum and its derivatives; the reasons given for the increase are to prevent excessive production, to protect national reserves and to provide for payment by the petroleum industries of equitable and proportionate "For previous correspondence relating to the proposed collection of royalties on the production of oil, see Foreign Relations, 1919, vol. 1, pp. 591 ff. Dated May 24, 1921; not printed. amounts into the public treasury for urgent expenses and the renewal of payments on the public debt. The decree becomes effective July 1st. SUMMERLIN 600.127/185: Telegram Mr. C. J. Wrightsman to the Secretary of State 62 TULSA, 19 June, 1921. [Received June 20-12:36 a.m.] Independent American Oil Producers who represent over 60 percent of American production and employ millions of American workmen respectfully protest against interference by this Government with Mexico's policy of export tax on oil. We are asking Congress for tariff on oil to stabilize the industry. It would be inconsistent and prejudicial to our prospects of securing this legitimate and positively needed measure of protection at a critical time for the State Department to make protest against export duty by Mexico. C. J. WRIGHTSMAN 600.127/206: Telegram The Consul at Tampico (Dawson) to the Secretary of State TAMPICO, June 30, 1921-10 p.m. [Received July 1-2:25 p.m.] Oil companies suspend shipments beginning with July 1st, alleging impossibility continuing business under new tax levies. Unemployment already existing as a result bad economic conditions will be increased greatly leaving thousands of laborers without means of support. Unrest and agitation are increasing and disturbances are very probable and will be directed against Americans and American capital. I believe reasonable precautions advisable for promptly meeting emergencies. Embassy informed. DAWSON 812.00/25070 The Secretary of the Navy (Denby) to the Secretary of State WASHINGTON, July 2, 1921. MY DEAR MR. SECRETARY: I am in receipt of your letter of July 1st 63 acquainting me with the situation at Tampico. The Department has ordered the Sacramento from Galveston to proceed imme 02 Similar communications were received from other American cil producers; not printed. diately to Tampico where she should arrive on Monday. Another ship has been ordered up from the Canal Zone and I hope the force present will be sufficient to prevent any trouble. Yours sincerely, EDWIN DENBY 600.127/211 Mr. Frederic N. Watriss to the Under Secretary of State (Fletcher) [NEW YORK (?),] July 7, 1921. DEAR MR. FLETCHER: One of the purposes of my visit to Washington was to see the Secretary of State to tell him the circumstances of what has been referred to as the "shut-down" or "embargo" by the American companies producing oil in Mexico. There has been no shut-down and no embargo; because the export taxes which became effective July 1st make it impossible for most of the companies to ship crude or fuel oil from Mexico except at a loss, most of the companies have decided to discontinue shipments of those oils. They will continue development wherever development cannot be discontinued without damage to the property, and they will continue production until lack of storage facilities stops production; what I want to impress upon your Department particularly is that there has been no concerted action by these companies and no agreement between them or any two of them with regard to their course of action. Each company has done what its particular situation made it necessary to do without reference to what other companies might do some have discontinued shipments, some have not and some have reduced shipments as far as their contract obligations would permit. Nor is it true that twenty-five thousand or ten thousand men have been thrown out of work as a consequence-a canvas [s] of the companies seems to show that since July 1st an insignificant number have been discharged. Prior to that date the companies had been compelled to cut down operations because of the tax and market conditions but this had no connection with the suspension of shipments. I shall be grateful if you will transmit the above information to Secretary Hughes as he indicated that he would like to be kept informed as to what the companies might do. Sincerely yours, FREDERIO N. WATRISS 115367-36—vol. II- -29 |